Teaching Your Children to Handle Money

You can use all sorts of methods to teach your children how to earn, save, invest, and spend wisely.

By Ron Blue

"Amanda? Amanda ... WHERE ARE YOU?" The woman's voice was marked by impatience and fatigue. Her daughter had been beside her just a minute ago. "Amanda, come here!"

"Here I am!" replied the child as she rounded a corner in the toy store and joined her mother and the baby in the checkout line. "Look what I found. Can we get it?"

Amanda's mother peered down at the brightly colored box in her daughter's hands. It held a small doll whose main feature seemed to be a cascade of shimmering hair trimmed with what looked like 10 or 12 ribbons, clips, and bows.

"No. Put it back."

"Please, Mom," Amanda begged, "I really want it. I love it."

"Amanda," her mother said, "you have plenty of dolls—and you hardly even play with them! Besides, we came here to buy diapers and a birthday present for your sister. We don't have money for a doll today—money doesn't grow on trees, you know."

"Please—"

Just then the baby started to cry. As the cashier rang up the diapers, Amanda's mother fumbled in her purse for a pacifier and her wallet.

This illustration—which reflects countless similar stories we experience or witness all the time—reveals both the challenges and opportunities we face when it comes to teaching our children to handle money wisely. Financial instructions begin even before the first dime gets dropped into the piggy bank. How well your children ultimately learn the lessons is dependent, to a large degree, on how well you manage your own resources. As Judy and I often remind each other, "More is caught than taught."

You can use all sorts of methods to teach your children how to earn, save, invest, and spend wisely. But no matter which techniques you choose, the bottom line in teaching wisdom to children is that children learn responsibility by having responsibility.

Instead of limiting your children's experiences in managing money or "covering" for them when they mishandle an allowance, encourage them to take responsibility for their own decisions. As you teach and train them, keep three basic principles in mind: If you want to give your children a legacy of wisdom, they must understand the concept of limited resources, they have to recognize the benefits of delayed gratification, and they need to develop a strong work ethic.

Limited resources

When Amanda's mother gave in and bought her the doll, she sent a mixed financial message. She said that she didn't have money for a doll and that money does not grow on trees. But what she did told another story: that the supply of money was unlimited, and that by asking or begging hard enough Amanda could get anything she wanted.

In reality, of course, you cannot have everything. There will always be unlimited ways to spend money. To make wise choices between these alternatives, kids need to understand the concept of limited resources.

The best way to teach this principle is to give your child the experience of living with a limited amount of money. For younger children, a weekly allowance—along with an explanation of the types of purchases it would need to cover—can provide invaluable "hands-on" training. Few exercises are harder on a parent than watching his or her child make unwise spending decisions and then have to live with the consequences. But until a child learns to prioritize his or her needs and wants, recognizing that the dollar won't buy both candy and stickers (or, for older children, stereo equipment and clothing), the child won't be able to make the hard choices that life is sure to send his or her way.

Amanda's mother may have missed an opportunity to teach her daughter about limited resources, but she—unfortunately—gave Amanda another powerful lesson. In her successful quest for the doll, Amanda enjoyed a first-rate opportunity to hone her manipulation skills and techniques. Begging, whining, flattering, throwing temper tantrums, even taking advantage of a parent's preoccupation with a crying baby or some other detail are all skills that children learn and parents (often unwittingly) reinforce. Instead of teaching her daughter how to accept the constraints of limited resources, Amanda's mother taught her how to get her way.

Delayed gratification

Delayed gratification is the willingness and ability to sacrifice immediate desires in order to achieve a future benefit. This concept—which runs contrary to a child's nature and to almost everything the world teaches about immediate gratification—can spell the difference between long-term financial success and failure.

When our children were growing up, we required each of them to have a savings account. They were responsible for contributing to the account, and they used their allowances, money they earned from doing special chores, and cash they received for birthdays or Christmas gifts to build their balances. Then, when they wanted to buy something like a new tennis racquet, a stereo, or a special party dress, they could dip into their savings. In addition to giving our kids the thrill of being able to acquire something they really wanted by saving—and waiting—for it, this system reinforced the concept of limited resources. When funds are depleted, you cannot buy something you might like to have—no matter how badly you want or need it.

A strong work ethic

Learning how to handle limited resources and to postpone gratification are just two of the marks of financial wisdom and maturity. The third principle that must be taught and cultivated in our children is a strong work ethic.

Amanda's mother may have meant well, but when she gave in and bought the doll, she missed a golden opportunity to teach her daughter a basic lesson about financial management: namely, that you can never get something for nothing. Everything costs, and there is always a trade-off between work and rewards.

Instead of simply buying the doll outright, Amanda's mother could have offered her daughter the opportunity to work and earn money—which she could then use to purchase the doll on her own. Such independent purchasing power is a tangible benefit of labor. Experiences such as this reinforce the relationship between time and money, or effort and reward, and can motivate a child to develop a strong and lasting work ethic.

In addition to helping children understand the link between work and economic rewards, the opportunity to work—with or without pay—offers at least two other significant benefits. First, it demonstrates obedience to God's command that we work (see Ephesians 4:28). Additionally, working hard to get a job done can fill a child with a vital sense of satisfaction and accomplishment (which, in turn, reinforces the strong work ethic).

The importance of teaching financial wisdom to your children cannot be underestimated. Imagine, for example, what would happen if Amanda were to reach adulthood without ever learning or understanding the concepts of limited resources, delayed gratification, and a strong work ethic.

Failing to recognize any limits on the money supply, she would look to her husband to provide unlimited financing for her desires. If he refused her demands or was unable to meet them, she might turn to her parents, cementing her dependency on their generosity and driving a wedge into her marriage relationship. Without an understanding of delayed gratification, Amanda would rely on the manipulation skills she learned as a child to get her own way. And with no solid work ethic of her own, she could easily become intolerant of her husband's need and desire to earn a living, sabotaging his work ethic and, ultimately, their marriage.

Obviously, women are not the only ones who need financial wisdom. An adult man who has never learned to earn and manage money wisely may lead his family into real financial difficulty. Think back to the story of the wayward son. With no appreciation for the value or necessity of hard work, and no apparent grasp of his limited resources, he was doomed. He wanted everything immediately—from his inheritance to the lifestyle it initially provided. How much pain would he (and his father) have been spared had he only learned the concepts of limited resources, delayed gratification, and hard work!

But there's another lesson in this story. When the son came back, repentant and humble, the father could have said something like, "Ha! I knew something like this would happen. Now you've gone and lost all your money—and you can bet I'm not giving you any more! If you want to stick around here, you're going to have to start earning your keep. Go on and feed the pigs—go on and get out of my sight!"

Plenty of fathers would have responded this way—and with understandable cause. But God, our heavenly Father, does not. Instead, He gives us gifts we don't earn or deserve. This is what generosity and grace are all about.

As important (and time-consuming) as it is to teach your children how to handle limited resources, delay gratification, and work to earn rewards, you can still feel free to give them money and gifts from time to time. All the economic resources that we ultimately end up with are gifts from God. As parents, we want our children to understand that God is a gracious God, and He may choose to give us gifts for no reason whatsoever.

Ron Blue is the founder of Ronald Blue & Co., LLC. He is considered a successful entrepreneur in the financial services industry and an admired leader and speaker on the topic of biblical financial management.

Following his graduation from Indiana University with a Masters of Business Administration degree, Ron joined the management group of Peat, Marwick, Mitchell & Co. and worked with the firm in New York City, Dallas, and San Francisco.

In 1970, Ron founded an Indianapolis-based CPA firm which has grown to be one of the 50 largest CPA firms in the United States. Leaving the CPA firm in 1977, Ron became Administrative Vice President of Leadership Dynamics International.

Convinced that Christians would better handle their personal finances if they were counseled objectively with the highest technical expertise and from a biblical perspective, he founded Ronald Blue & Co., a fee-only financial planning firm, in 1979.

Ron retired from the financial planning firm in 2003 in order to lead an international effort to equip and motivate Christian financial professionals to serve the body of Christ by implementing biblical wisdom in their lives and practices, resulting in financial freedom and increased giving by thousands of dollars by thousands of Christians around the world. He is currently President of Kingdom Advisors. (www.kingdomadvisors.org)

Ron is the author of twenty books on personal finance from a biblical perspective, including the best-seller,Master Your Money, first published in 1986 and now in its twenty-ninth printing and his most recent book, Surviving Financial Meltdown, co-authored with Jeremy White.